Legal Tech – a five year horizon

United Kingdom

08/02/2018

Freshfields Bruckhaus Deringer

Legal Tech is not new. eDiscovery has been helping with the heavy lifting on litigious matters since the 1990s, and it’s not like law firms sat out the dot com boom, rise of Microsoft Office, document comparisons, secure printing, etc. Nonetheless, a new stratus of legal technology led predominantly by start-ups – rather than incumbent tech houses – burst onto the scene around five years ago, full of promises.

As buzzwords like “AI” and “Blockchain” recede a little from our news feeds, and the initial legal tech hype appears to be calming, we take stock. What will happen over the next five years? What will it mean for young lawyers? Gone are the days of dizzy demos thrice a day. We are more careful in responding to unsolicited marketing emails. That’s not to say it’s been a fruitless era of bad ideas. The proliferation of ambitious ideas should be celebrated. Design Thinking teaches us to aim first for divergence (i.e. many weird and wonderful ideas) – an indication of high creativity – and then convergence. Cool heads in the market will naturally converge on winners.

In this article, we cover our high level view of likely developments and challenges in the next five years. It’s not often we get the chance to take a breath, reflect and collect our thoughts into something that might pass for commentary. Thanks to Ben Mears from the Collective Campus in Australia for prompting us with his good questions.

What will we see in the next 5 years for Legal Tech?

Greater consolidation through M&A and partnerships is a safe bet. Although still a young market, legal tech is showing early signs of adolescence. We’ve already seen some M&A consolidation led by larger vendors (e.g. iManage and RAVN in 2017 and Seal Software’s recent acquisition of Apogee Legal this summer).

We are also seeing another form of consolidation through partnerships and integrations. For example, providers of case management and other platforms are providing plug-ins for clients by partnering with vendors (e.g. Clio, a case management provider catering to small- to medium-sized law firms has a portfolio of partners that integrate with its platform, such as Allocate for time recording). These partnerships are creating clustered environments that act as single points of access for legal tech users.

In the next five years, we could see a few key players win out, and the market converge on their offerings (think along the lines of SAP in the world of enterprise resource planning (ERP) and Salesforce in the world of customer services (CRM)).

At the same time, it’s still a relatively open space, as the barriers to entry remain low and current “key” players are still relatively localised (e.g. Ross’s services are largely limited to North America). The heavy guns of incumbent tech houses (e.g. IBM Watson, Microsoft, etc.) have yet to really wade in.

This may be for a number of reasons – bigger fish to fry or trust that road-mapped features of their core business products (e.g. for O365) will solve for issues in the round (e.g. DMS, eDiscovery, data rooms). Meanwhile, new vendors that have built businesses around point-solutions (perhaps linked to existing versions of major products like Microsoft Office) risk being swept away by later releases.

In summary, it’s still possible for new entrants to gain traction quickly, off the back of a differentiated product. But watch for some emerging winners in the next few years.

As an afterthought on this, we may also see one of two strategies win out for vendor scalability. Currently, vendors are either gaining a foothold for a particular product, and then rapidly developing verticals to broaden their offering (e.g. InTapp), or keeping a narrow focus and iterating quickly to improve performance (e.g. adding layers of intelligence, such as machine learning, and advanced data analytics).

Law firms do face cultural challenges when innovating

For centuries, law firms have succeeded off the back of a culture of excellence. Long winning streaks can engender a culture of conservatism. There is much sense in the oft-used saying that “culture eats strategy for breakfast”. Innovating involves risk, failure and new ways of working. The appetite for those ingredients in a culture of conservative excellence can be extremely low.

It takes some brave sponsors and the empowerment of our fantastic global talent to break free of that. The pace of change in legal tech and the opportunities that are out there to tackle some of our known issues provide a welcome positive pressure.

In more detail, the attributes required for our client services (e.g. risk aversion, client confidentiality, etc.) do not always align with the attributes needed to succeed as a business (e.g. risk, new and flexible commercial arrangements, new business models, etc.). However, there are areas where they absolutely do align (e.g. problem solving, strategic thinking, intelligence, etc.). It’s about emphasizing the alignment, empathising the nonalignment, and leveraging diverse expertise to create innovative solutions for our people and our clients.

Look for touchpoints of collaboration for ground-breaking development

Legal tech is not a closed scene – there are many players engaging from different angles: private practice law firms, auditors / consultants (e.g. each of the “Big Four”), in-house counsel, alternative service providers, start-ups, incumbent technology houses, charities, governments and court systems. So the best advice to anyone trying to monitor the scene is to keep a broad scope and focus on the intersections between these players.

We see the greatest momentum coming from tie-ups that unleash collaboration across a range of skillsets (e.g. developers, designers, practising lawyers, business strategists, etc.). Perhaps look out for strategic partnerships (between corporates and / or non-corporates) and new entities that bring different professions together (e.g. Dot – a legal design and legal tech consultancy).

It’s a very exciting time for young lawyers to enter the profession

If you are thinking about becoming a lawyer, or are at the beginning of your career, take heart. You are entering the profession at a very exciting time. We lawyers are becoming truly tech-enabled. What does that mean? There is a realistic hope that mundane process tasks will soon be a thing of the past, freeing up junior lawyers for more cerebrally stimulating, strategic tasks.

Be open minded as to what it means to be a lawyer, and embrace both the expertise of others and the opportunities to expand your own skillset (e.g. a firm-sponsored course in coding). Our client services benefit from the convergence of a range of expertise – legal, digital design, technology, business development, marketing, etc. Your future clients will thank you for it.

Know that you are instrumental in effecting any positive change, by observing and being vocal about imperfect solutions, as well as any workarounds you have put in place to do your work efficiently. These are gold dust for innovation professionals, helping us gauge the severity of issues and how to prioritise resource. If you are interested, offer to get involved in developing a solution.